When Congress passed a law in 2009 effectively banning mail-order deliveries of cigarettes, it was expected to snuff out entrepreneurs on New York’s Indian reservations who were selling millions of cartons, tax-free, to consumers in high-tax states.
But the law, the Prevent All Cigarette Trafficking Act, didn’t stop everybody.
As recently as last spring, one group of about 20 website operators on Seneca Nation territory was still delivering 1.7 tons of untaxed cigarettes a week to destinations around the U.S., according to shipping records obtained by lawyers for New York City as part of a civil racketeering lawsuit.
The city’s efforts are part of a wider legal battle involving the ability of states to tax cigarettes sold on Indian reservations, where tribal leaders have long maintained that the state has no authority to tax anything sold on their territory.
Depositions and court documents show that after the new law barred anyone from shipping cigarettes through the Postal Service, and major delivery companies like FedEx and UPS separately agreed to end deliveries, some reservation-based distributors simply turned to new networks of logistics and shipping companies to reach their customers.
Buyers still weren’t required to pay taxes. Some sites never asked buyers to prove their age, or even provide a real name. A few retailers proudly advertised that they would help protect tax scofflaws.
“NO STATE TAXES, NO REPORTS to anyone EVER and NO Surprise Tax Bills,” boasted one site. “The USA Federal PACT Act is in effect, but we beat it legally.”
New York City took the unusual step last month of suing a Virginia-based delivery company that had helped reservation shops deliver cigarettes into the city without charging consumers the required tax of $5.85 per pack. The suit seeks $80.6 million in penalties.
An attorney for Keith Stoldt, who operated the Totem Pole Smoke Shop on the Tonawanda Seneca Indian Reservation in Basom, N.Y., and pleaded guilty this year to illegally acquiring $4.1 million in untaxed cigarettes, said the cases are complicated by centuries-old disputes over taxation and sovereignty.
“These guys were here first. They have continuously owned and occupied their patch of [land]. They’ve never accepted citizenship,” said Brad Waterman. “What the Iroquois people would tell you is, ‘We traded with each other a long time before any of you guys got here.’”